The University of North Carolina · North Carolina at Wilmington University of North Carolina...
Transcript of The University of North Carolina · North Carolina at Wilmington University of North Carolina...
The University of North Carolina POST OFFICE BOX 2688, CHAPEL HILL, NC 27515-2688
ERSKINE B. BOWLES , President
Telephone: (919) 962-1000 Fax (919) 843-9695 E-mail: [email protected]
Constituent Universities
Appalachian State University
East Carolina University
Elizabeth City State University
Fayetteville State University
North Carolina Agricultural and Technical State University
North Carolina Central University
North Carolina State University at Raleigh
University of North Carolina
at Asheville
University of North Carolina at Chapel Hill
University of North Carolina at Charlotte
University of North Carolina at Greensboro
University of North Carolina at Pembroke
University of North Carolina at Wilmington
University of North Carolina School of the Arts
Western Carolina University
Winston-Salem State University
Constituent High School North Carolina School of Science and Mathematics
An Equal Opportunity/ Affirmative Action Employer
February 27, 2009 TO: Members of the Board of Governors
FROM: Erskine Bowles SUBJECT: Economic Impact of the University of North Carolina. I wanted you to know about a new study that underscores some of the key ways that the University of North Carolina benefits the state economically. Dr. Mike Walden, William Neal Reynolds Distinguished Professor at NC State, has taken a high-level look at the impact our teaching, research, and public service activities have on our state. Dr. Walden’s report is not intended to be a complete measurement of all the ways UNC campuses benefit our state, but rather focuses on the most direct economic impact of our core missions of teaching and research. It also provides some excellent examples of public service activities. The report does not attempt to measure a host of factors that many would argue constitute some of the University’s biggest contributions to the state’s economy. For example, it does not measure the leadership skills developed at the University, e.g., the work and service ethic its graduates develop and apply throughout their lives. It also does not attempt to capture the University’s impact on the cultural life of its host communities or local campus efforts to provide advice and counsel to businesses, governmental entities or nonprofits, or the impact of higher educational attainment in lowering rates of use of social services. Finally, the report does not attempt to quantify the economic value of research conducted, patents created, products launched, or companies started each year as a result of our public universities. For different reasons, the report doesn’t attempt to compute the considerable impact of state spending on the University, spending at UNC campus cultural and sporting events, or spending by University faculty, staff and in-state students in their local communities. These types of expenditures, Dr. Walden argues, do not reflect new dollars brought into North Carolina because of the University, but rather a reallocation of existing public and personal resources that could have been spent for other purposes.
February 27, 2009 Page 2
While there may be value in conducting a more comprehensive long-term assessment of University impacts at some point in the future, we wanted to share these high-level findings with you as soon as possible so that you could see known impacts in each of the following critical areas: Teaching: Among each year’s graduating class of UNC students, those who remain to work in North Carolina will collectively earn about $7.4 billion MORE than they would have without their college degrees. A very conservative multiplier applied to the spending of this extra income shows that each year’s graduating class adds $8.88 billion to North Carolina’s economy over the course of their lifetimes. Put another way, Dr. Walden finds that for every $1 appropriated to the UNC system, an additional $9 to $12 in lifetime income is generated for the state. [Due to the unique nature of the UNC School of the Arts’ programs and graduates, Dr. Walden did not attempt to calculate added lifetime income for its graduates who remain working in North Carolina.] Research: Outside funding brought in to the state’s public universities in the most recent year had a net total impact of $1.1 billion. Dr. Walden does not attempt to quantify the added impact of the 435 inventions, 272 patents, or 16 new companies started by UNC researchers. Public Service: University-wide “public service” activities serve a variety of critical functions, from the SBTDC and Industrial Extension Service, which together helped North Carolina companies hold on to more than 10,000 jobs and secure more than $1 billion in government contracts; to the School of Government, which trained more than 15,000 public officials; to the UNC Center for School Leadership Development, which served nearly 30,000 educators; to UNC-Chapel Hill, ECU, and AHEC efforts in health care, which together served nearly 1.8 million people in the latest reporting year. Dr. Walden’s conservative calculations show that even when estimating the impacts of UNC teaching and research ALONE, the state gets back considerably more in taxes than it spends on the University. He concludes that the total return on the state’s annual investment is between 1.7-to-1 and 2.1-to-1. Put another way, spending $100 on our UNC campuses brings in more than $170 in revenues to the state. I’ve attached the report for your review. We believe it provides valuable evidence of the enormous economic contributions our public universities make each and every day to the life and economic health of the state. Attachment cc: The Chancellors General Administration Council
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ECONOMIC BENEFITS IN NORTH CAROLINA OF
THE UNIVERSITY OF NORTH CAROLINA CAMPUSES
Prepared by Dr. Michael L. Walden1
William Neal Reynolds Distinguished Professor
North Carolina State University
January 2009
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Executive Summary
The institutions of the University of North Carolina System are engaged in three
missions: teaching, research, and service. The purpose of this report is to quantify – in
monetary terms where possible – the annual economic impact of the System’s activities on
the North Carolina economy. The annual impact of the teaching function is measured as
the expected net lifetime increment to earnings of the yearly graduates who remain
working in North Carolina after receiving their degree. The yearly impact of research is
calculated as the annual monetary value of federal and private funding brought to North
Carolina by UNC System faculty and staff. Unfortunately, an easily calculated monetary
value of the service function was not available. Therefore, several non-monetary
indicators of service (or outreach) are provided suggesting the range and scope of outreach
by UNC System faculty and staff.
Using 2006 as the benchmark year, the results show the economic impact of the
UNC System to be considerable in the state. The future productive value of annual
graduates is put at $7.4 billion. Federal and privately funded research add almost $1
billion, annual spending by out-of-state students contributes over $300 million, and service
efforts touch between one-third and one-half of all residents each year. The total direct
annual impact is $8.7 billion and $10.4 billion with multiplier effects. If the UNC System
was ranked as an industry in the state, it would be the 11th largest among 43 private sector
industries. Due to the inability to accurately measure the ultimate impacts of research and
service activities, these monetary values likely understate the UNC System’s true economic
impact.
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INTRODUCTION
The University of North Carolina System has had a major influence on North Carolina
for over two centuries. Today, through the efforts of the faculty, students, and staff of the
System’s sixteen campuses, thousands of North Carolina residents, businesses, and institutions
are touched each year by the programs and activities of one of the nation’s leaders in public
higher education.
These programs and activities are numerous and varied, but they can be summarized
under three categories: teaching, research, and service. Teaching activities are primarily – but
not confined to – developing learning and skills among students enrolled in degree programs.
Research is focused study by faculty, staff, and students on improving the understanding of
phenomenon and relationships that can ultimately result in new discoveries and findings to
improve the quality of life. Service includes those activities which extend the teaching and
research of faculty, staff, and students outside the bounds of academia and directly to the people
and communities of the state.
Certainly it is difficult to quantify all the benefits of the teaching, research, and service
efforts of the University of North Carolina System campuses. For example, the enhanced
appreciation a student receives for the great works of literature from a college course, the added
knowledge gained about the lifespan of primitive life from research on coastal estuaries, or the
enjoyment attained by attendees at university-sponsored cultural and sporting events are all
difficult – indeed impossible – to measure in monetary terms.
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Still, it is important, where possible, to benchmark the value of university activities for
several reasons. Such benchmarks give direct users of the activities – students, those applying
research findings, and beneficiaries of university services – some sense of the returns they
receive. The measures also provide public sector decision-makers, particularly those in North
Carolina’s state government, with values that can be compared to the valuable investments made
by the public sector in the state’s public university system. Finally, the measures can be
compared against similar measures for private sector industries to gauge where the University of
North Carolina System ranks as an economic sector in North Carolina.
This paper therefore seeks to identify and quantify new resources – usually measured in
income or spending – created in or brought to North Carolina as a result of the activities of the
University of North Carolina System campuses. As a result, activities which only reallocate
resources already in the state are not included. Examples of excluded activities are room, board,
and other expenses of in-state students, spending at campus cultural and sporting events, and
operating budgets of the UNC System institutions funded by North Carolina state government
resources. The arguments for exclusion are that room, board, and other spending by in-state
students would have occurred even if the individuals weren’t in college. Likewise, spending by
attendees at UNC System cultural and sporting events is a re-direction of North Carolina resident
spending on leisure activities.2 Further, publicly raised state resources could always be spent on
other public functions in the state or be left with taxpayers to spend.
Following this introduction, the report is divided into five sections. Three sections are
devoted to measuring the benefits of the teaching, research, and service functions of the
university system. Next is a section that places the economic impact of the University of North
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Carolina System in the context of the state economy. A concluding section provides a summary
of the findings.
IMPACTS OF TEACHING
Teaching develops, what economists call, the “human capital” of students. Like the
capital embodied in the machinery and technology of the modern factory and office, human
capital represents the knowledge and skills of people. When these knowledge and skills are
developed to a higher level, people are more productive as workers. The marketplace
recognizes this greater productivity by paying workers with enhanced knowledge and skills a
higher salary.
Therefore, one measure of the economic value of a college degree is the additional salary
earned by college graduates compared to non-college graduates. However, the value of a
college degree goes beyond a one-year comparison, as say between a college graduate earning
$50,000 and a high school graduate earning $20,000. Instead, the degree’s value is the lifetime
of additional salary earned by the college graduate. This lifetime value represents the
embodiment of additional productivity of the college graduate. It is measured by a concept
called the net present value of expected additional future earnings. This is the value, in the
purchasing power of today’s dollars, of all the expected additional salary (net of the graduate’s
college costs) over the graduate’s work lifetime from having the college degree. The concept is
directly comparable to the market value (price) of a unit of machinery or technology, where that
price also represents the additional productivity expected from the unit during its useful lifetime.
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It should be recognized the net present value of additional future earnings from having a
college degree is an approximation to the worth of that degree, and arguments can be presented
that the value both overstates and understates the true worth. It can overstate a degree’s value if
inherent traits and skills of the graduate, or skills learned outside of college training, contribute
significantly to the graduate’s lifetime earnings. In contrast, the measure can understate the
value of a college degree if there are significant benefits from the degree that aren’t captured by
the associated higher salary. These unmeasured benefits can be individual in nature, such as the
greater enjoyment college graduates might receive from the fine arts, history, domestic and
foreign cultures, and current affairs. Or, the unmeasured benefits can be social in nature. For
example, expected higher future salaries may motivate college graduates to take better care of
their physical health and to be less likely to engage in criminal activities. If so, then government
spending on health care and on law enforcement and incarceration may be lower as a result, and
the reduced government expenditures on these functions can be viewed as a societal benefit.
Accepting these cautions, this section reports the results of measuring the value of
degrees from the University of North Carolina System institutions by the net present value of
expected additional future earnings associated with the degree. The results were obtained by
applying the following steps. First, for each institution, a graduating class was sorted by degree
(bachelors, masters, doctorate, law, medical) and major. Then, the tuition and fees, costs of
books and supplies, and foregone earnings paid by each graduate over their college years were
identified and summed. This sum represents the direct monetary cost to the student of the
college degree.3 Next, the average salaries of recent UNC System graduates with specific
degree-majors who have been working full-time in North Carolina were identified for each
institution.4 From each of these salaries was subtracted the alternative salary the graduate would
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have earned if the college degree had not been obtained. For bachelors degrees, the alternative
salary is that of a high school graduate in North Carolina; for masters, law, and medical degrees,
it is the average salary of a bachelors degree; and for doctorate degrees, it is the average salary of
a masters degree.5 Last, assuming the graduate works until age 67, future additional salary
dollar amounts are adjusted to current purchasing power dollars, the graduate’s college costs are
subtracted, and a net present value of expected additional future earnings amount is obtained for
each degree-major in each institution.6 Multiplying this value by the number of graduates in a
class with that degree major and who stays to work in North Carolina yields aggregate values.7
Table 1 shows the aggregate results, summed over all degrees and majors, for each
institution and the total for the University of North Carolina System. It is based on the
graduating class of 2003-04, the latest for which the salary data were available, with the results
expressed in 2006 purchasing power dollars. Results for the University of North Carolina
School of the Arts are not included due to the unique nature of the School’s programs and
graduates.8
The results are impressive. Based on the salary increment they are expected to receive
over their work lifetime, the 2003-04 UNC System graduating class will directly generate over
$7 billion of additional income in the state, measured as a single amount in 2006 dollars. When
the impacts of the re-spending of this income within North Carolina are accounted for – the so-
called multiplier effect – the value increases to almost $9 billion.9
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Table 1. Expected Aggregate Net Present Value of Additional Lifetime Income Earned by Graduates of UNC System Institutions Who Remain Working in North Carolina, 2003-04 Graduating Class, in 2006 Dollars a
Institution Without Multiplier Effects With Multiplier Effects
Appalachian State University 486,005,936 583,207,123
East Carolina University 793,635,690 952,362,828
Elizabeth City State Univ. 25,048,073 30,057,688
Fayetteville State Univ. 102,411,554 122,893,865
N.C. Agril. & Tech. State Un. 168,774,550 202,529,460
North Carolina Central Univ. 219,533,045 263,439,654
North Carolina State Univ. 1,400,442,255 1,680,530,706
University of NC at Asheville 29,209,093 35,050,912
Univ. of NC at Chapel Hill 1,443,952,217 1,732,742,660
Univ. of NC at Charlotte 981,809,907 1,178,171,888
Univ. of NC at Greensboro 743,071,824 891,686,189
Univ. of NC at Pembroke 154,867,404 185,840,885
Univ. of NC at Wilmington 375,991,188 451,189,426
Western Carolina University 297,087,750 365,505,300
Winston-Salem State Univ. 185,086,993 222,104,392
System Total $7,406,927,479 $8,888,312,975
a Calculations from the University of North Carolina School of the Arts not included.
Source: Calculations using data from the UNC System General Administration and the Employment Security Commission of North Carolina
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It is informative to calculate the return on the state’s investment in the University of
North Carolina System represented by the income values in Table 1. Four such returns are
estimated. The first (Return 1) takes the aggregate cost in state appropriations to the UNC
System institutions for the class of 2003-04 and divides it into the system-total net income
increment, without multiplier effects, from Table 1. The second measure (Return 2) takes the
same aggregate cost and divides it into the system-total net income increment, with multiplier
effects, from Table 1.10 The third measure (Return 3) divides the aggregate cost into an estimate
of the state and local public revenues derived from the system-total net income increment,
without multiplier effects, from Table 1, and the fourth measure (Return 4) divides the aggregate
cost into an estimate of the state and local public revenues derived from the system-total net
income increment, with multiplier effects, from Table 1.11 In essence, Return 1 and Return 2
answer how much private sector income of graduates is associated with each dollar of state funds
appropriated to instructional costs for those graduates, whereas Return 3 and Return 4 address
how much public sector revenue from graduates is associated with each dollar of state funds
appropriated to instructional costs for the graduates.
The results for Return 1, Return 2, Return 3, and Return 4 are in Table 2 and again they
are significant. Returns 1 and 2 show between $9 and $12 of lifetime income is associated with
every dollar of state appropriations to UNC System instruction. Returns 3 and 4 indicate that
between $1.4 and $1.6 of state and local public revenue in North Carolina is associated with
every dollar of state appropriations to UNC System academic instruction.
10
Table 2. Alternative Rates of Return to State Appropriations for UNC System Instructional Spending ($ of return per $ of public expenditure)
Return 1 9.65
Return 2 11.59
Return 3 1.37
Return 4 1.62
Source: Calculations using data from Table 1 and budgetary information from the North Carolina Office of State Budget and Management.
One other impact of the teaching function is the additional annual spending in North
Carolina generated from out-of-state students attending campuses of the University of North
Carolina System. This spending is assumed to be approximately $10,000 annually.12 In 2006,
this spending from out-of-state students is estimated at $316,360,000. Adding multiplier effects
increases the impact to $379,632,000. Revenues from out-of-state student tuition and fees aren’t
included under the assumption those revenues offset the associated public costs for the students.
IMPACTS OF RESEARCH AND SPONSORED PROGRAMS
A second mission of University of North Carolina System institutions is research.13 The
research activities span many topics and many activities, including improving health care and
finding treatments and cures for illnesses and diseases, developing and adapting new sources of
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energy, mitigating pollution and environmental degradation, improving the economic and social
dimensions of life for North Carolinians, and increasing our understanding of climate change,
damaging storms, and shifting weather patterns – to name only a few.
The economic impact of these research activities ultimately rests on an evaluation of the
practical applications of the research results. So, for example, the impact of research that results
in improved predictability of the timing and path of hurricanes would be calibrated by the
resulting reduction in lives and injuries and property saved as a result of implementing the
research’s recommendations. Or, a research program that discovers methods to improve energy
efficiency would be measured by the market value of associated reduced energy usage. Other
impacts of research include helping to attract, retain, or expand businesses, which in some cases
is encouraged by university research capacity.
Unfortunately, deriving such economic impacts of research programs is project specific
and very time consuming.14 We can, however, quantify some of the outcomes of research
activities. Technology transfer, or the sharing of university-based knowledge and inventions
with the specific purpose of developing new technologies and products, often results in
measurable economic impacts. The UNC System’s six campuses with established technology
transfer offices report annual activity to the Association of University Technology Managers.
The 2006 survey, the most recent with information from all six campuses, shows those campuses
reported 435 inventions, filed 272 patents, managed 963 licensing agreements, and received over
$6 million in licensing income. Sixteen UNC System-based spin-off companies were also
launched in 2006.
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Another alternative to assessing the impact of the UNC System research enterprise is to
measure the research funds attracted by UNC System institutions from non-state sources.15
This information is presented in Table 3, for the fiscal year 2006-07 and in 2006 dollars, for each
institution and in total. The amount of federal funding has been reduced by 2.4% to account for
North Carolina’s share of federal tax collections.16 The “total funding with multiplier” uses a
multiplier of 1.2 and, again, accounts for the re-spending of funds within the state. For the
UNC System, the results show almost one billion dollars of funding without including multiplier
effects and over $1.1 billion of funding with the inclusion of multiplier effects.
The “payoff” to North Carolina from research can be added to the returns from teaching
to see a total return from these two activities relative to state appropriations, as given in Table 4.
The research returns augment the teaching returns to give total returns from the two functions to
between 12 and 15 for income and 1.7 and over 2.1 for state and local public revenue.
IMPACTS FROM SERVICE
UNC System service includes activities by faculty and staff outside of the formal
classroom and laboratory and in the community, working with residents, businesses, non-profit
organizations, and governmental officials to enhance knowledge and skills so that better private
and public decisions can be made and outcomes improved. Services activities work with “real”
situations and “real” decision-makers in “real” time.
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Table 3. Federal and Privately Funded Research and Sponsored Programs at UNC System Institutions, 2006-07 Fiscal Year, 2006 Dollars a
Institution Federal Funding Private Funding Total w/o Mult. Total with Mult.
Appal. St. Univ. 4,199,156 3,998,801 4,604,423 5,525,308
East. Car. Univ. 13,309,258 19,340,914 15,783,151 18,939,781
Eliz. City St. Un. 8,085,162 2,173,234 8,153,163 9,783,795
Fay. State Univ. 9,385,335 1,038,610 9,393,335 11,272,002
NC A&T Univ. 34,409,027 4,318,032 36,149,548 43,379,458
NC Central Univ 19,739,429 2,786,441 19,739,429 23,687,315
NC State Univ. 102,802,578 51,213,734 122,885,987 147,463,077
UNC-Asheville 2,948,162 315,190 2,948,162 3,537,794
UNC-CH 432,486,144 136,254,084 458,677,870 550,413,444
UNC-Charlotte 19,023,614 8,774,717 23,308,112 27,969,734
UNC-Greens. 20,345,403 8,730,270 21,092,118 25,310,542
UNC-Pembroke 1,993,886 520,314 1,993,886 2,392,663
UNC-Wilm. 11,961,641 2,979,661 12,568,798 15,082,558
West. Car. Univ. 3,482,641 1,437,453 3,482,641 4,179,170
W-S State Univ. 11,500,378 444,657 11,500,379 13,800,455
UNC – GAb 10,275,391 6,248,060 11,177,191 13,412,630
System Total 705,947,211 250,574,171 956,521,382 1,147,825,658
a Federal funding includes a reduction of 2.4% to account for the share of federal government tax receipts by North Carolina residents. No data available for the North Carolina School of the Arts.
b Funds allocated to the UNC General Administration instead of any particular institution.
Source: UNC – General Administrations and author’s calculations.
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Table 4. Alternative Rates of Return to State Appropriations for UNC System Instructional and Research Spending ($ of return per $ of public expenditure)
Return 1 12.58
Return 2 15.11
Return 3 1.76
Return 4 2.11
Source: Calculations using data from Tables 1 and 3 and budgetary information from the North Carolina Office of State Budget and Management.
The service work (also termed “outreach”) conducted by UNC System faculty and staff is
broad and touches almost every aspect of life in North Carolina. UNC System faculty and staff
work with farmers, with agribusiness companies, with businesses both large, small and start-up,
with families, children, and young adults, with injured and ill patients, with employers,
employees, and retired persons, with those seeking skills for work as well as those looking for
pleasurable knowledge, and with local and state elected and non-elected officials. The service
work is delivered through a wide variety of methods and organizations, ranging from the
statewide Cooperative Extension Service which has offices in every county, to UNC Healthcare
with several hospitals and clinics, to work done by individual faculty.
As with research activities, gauging the economic impact of service activities is difficult.
Many of the activities don’t have a direct market value attached to them. The impacts of the
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activities are often difficult to separate from other factors that are occurring at the same time.
Also there’s the issue that the impacts of service programs may only occur over a long period of
time. Thus, longitudinal studies which carefully separate the effects of UNC System service
activities from other determinants of outcomes would need to be conducted to accurately
calibrate service impacts.17
Such longitudinal studies are not available for UNC System service activities. Instead,
this report presents less comprehensive, yet still meaningful, indicators of the activities’ impacts
by listing non-monetary measures of the quantity of service activities. (Table 5). The list is not
comprehensive and certainly misses some important programs. It also misses activities that
aren’t easily documented or quantified, such as public information provided by faculty and
volunteer services by faculty and staff.
Nonetheless, the numbers strongly suggest and substantiate that UNC System service
activities touch a large number of North Carolinians and North Carolina communities. It is not
an exaggeration to say that faculty and staff of the UNC System interact with residents,
businesses, organizations, and governments in every North Carolina county and virtually every
town and municipality.
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Table 5. Selected Indicators of UNC System Service Activities (fiscal year 2007-2008 unless otherwise stated)
___________________________________________________________________
UNC Healthcare
Clinic visits 741,980
Surgical visits 22,327
ER visits 61,200
Discharges (incl. newborns) 35,934
Uncompensated indigent care costs $226.8 million
Area Health Education Centers (AHEC)
Total clinic visits 505,642
Specialty clinic visits 18,848
Middle and high school health careers
recruitment program 37,400
Continuing education programs attendees 206,834
Student months of community placement 10,489
ECU Physician Practice
Outpatient visits 335,000
Emergency room visits 83,330
Surgical procedures 11,652
Birth deliveries 2,823
HIV positive patients 1,190
Indigent patients served 20,500
Uncompensated indigent care costs $9.5 million
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Table 5, continued
North Carolina Cooperative Extension Service
Face to face contacts 2,153,332
Non face to face contacts 3,888,320
Participants in meetings/workshops/training 556,054
North Carolina Industrial Extension Servicea
Number of jobs retained or created 3,010
Small Business and Technology Development Center
Clients counseled 5,184
Training attendees 5,872
Number of jobs retained or created 7,667
Government contracts to clients $1.1 billion
UNC School of Government
Public official program attendees approx. 15,000
Public official courses and programs approx. 200
Center for School Leadership Development
Teachers, principals, and administrators served 29,891
Contact hours 642,263
Local education agencies served 115
NC Center for the Advancement of Teaching
Teacher seminar/program attendees 5,101
Teacher professional development attendees 883
Patents by facultyb
Number of applications filed 1,293 ____________________________________________________________________
a 2005-2008
b 2001-2005
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Table 5, continued
Sources: www.unchealthcare.com; AHEC Director’s Office; ECU Brody School of Medicine; North Carolina Cooperative Extension Reporting System; UNC-General Administration; www.ies.ncsu.edu; North Carolina Industrial Extension Service; Small Business and Technology Development Center; UNC School of Government; Center for School Leadership Annual Report; NC Center for the Advancement of Teaching; UNC Tomorrow Report.
THE UNC SYSTEM AS AN INDUSTRY
The UNC System impacts that can be easily quantified in financial terms are the
investment value of the annual degrees awarded (Table 1) and the annual federally and private
funded research (Table 3).18 As already shown, these annual combined values are impressive: in
2006, $8.7 billion without multiplier effects, and $10.4 billion with multiplier effects. For
several reasons already noted (most importantly - the monetary impacts of service activities are
omitted, and the ultimate impacts of research aren’t used), these totals are likely to be lower-
bounds of the System’s annual economic impact in North Carolina.
The $8.7 billion can be viewed as the annual (in 2006) economic “production” from the
UNC System in the state. As such, it can be compared to the annual economic production
values of other industries operating in North Carolina. This is done in Table 6 using the U.S
Bureau of Labor Statistic’s values for “gross state product” in the state’s major industries.19
Direct values (without multiplier effects) are used.
19
Table 6. Gross State Product Values for Private Industries and the UNC System in North Carolina, 2006, Billions of Dollars.
Banking $43.5
Real estate $33.0
Retail trade $23.4
Wholesale trade $20.0
Food product manufacturing $18.6
Construction $18.1
Professional & technical services $17.8
Chemical manufacturing $14.0
Ambulatory health care services $13.0
Administrative and support services $9.1
UNC System $8.7
Hospital and nursing care facilities $8.2
Management of companies $7.8
Utilities $6.7
Restaurants $6.6
Broadcasting & communication $6.6
Computer & electrical product manufacturing $5.8
Insurance $5.1
Agriculture, forestry, & fishing $5.0
Truck transportation $3.9
Water, rail, and air transportation $3.9
Fabricated metal product manufacturing $3.9
Machinery manufacturing $3.9
Transportation equipment manufacturing $3.4
Software publishing $3.2
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Table 6, continued
Educational services $2.9
Textile products $2.9
Electrical equipment & appliance manufacturing $2.8
Arts, entertainment, & recreation $2.7
Securities investments $2.6
Furniture $2.4
Rental & leasing services $2.1
Social assistance $2.0
Lodging $2.0
Wood product manufacturing $2.0
Non-metallic product manufacturing $1.9
Apparel manufacturing $1.6
Paper manufacturing $1.6
Miscellaneous manufacturing $1.5
Primary metal manufacturing $1.5
Printing manufacturing $1.1
Warehousing & storage $1.0
Mining $0.6
______________________________________________________________________________
Source: U.S. Bureau of Economic Analysis; Table 1; Table 3.
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The table shows that if the UNC System were classified as an industry, its annual
production in the state would rank 11th among 43 private sector industries.20 The annual
production of the System would rank ahead of all but two manufacturing sectors (food
manufacturing and chemicals), and would also exceed sectors such as transportation, utilities,
food service, hospitals, agriculture, communications, lodging and recreation, and insurance and
securities investments. Furthermore, this ranking of UNC System production is likely to be low
for two reasons. First, as already emphasized, the calculated production value for the UNC
System includes modest monetary values for the System’s research function and no monetary
values for its service function. Second, embedded in the production values of the other private
industries is the productivity of many UNC System graduates. If the monetary value of this
productivity was subtracted from the private industries, their remaining values and rankings
would fall and the UNC System’s ranking would rise.
CONCLUSIONS
This report has documented the very significant impact of the UNC System to the
economy of North Carolina. Each of the System’s three functions – teaching, research, and
service – make valuable and large contributions to North Carolina each year.
The monetary value of the teaching function was measured as the net present value of the
estimated increments to lifetime income of the System’s annual graduates who remain working
in the state. These increments are expected to represent the enhanced productivity the graduates
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bring to the state’s economy. Using the class of 2006 as an example, the annual aggregate value
of teaching was $7.4 billion, with an additional $300 million added by out-of-state student
spending. The monetary value of the research function was taken as the annual value of non-
state funded research from federal and private sources. In 2006, this funding totaled almost $1
billion. These values are direct impacts; adding “multiplier” impacts increase them even more.
A monetary value was not calculated for the service function. Instead, the impact of this activity
was indicated by various “contact” quantities, such as the number of patients treated by UNC
Healthcare, the number of persons receiving information or training from the North Carolina
Cooperative Extension Service, and the number of patents generated by UNC System faculty and
staff.
If the monetary values of the teaching and research functions are combined and treated as
the annual “production” of the UNC System, then in 2006 the System was the 11th largest
industry among 43 total private industries in the state. Furthermore, the System yielded between
$12 and $15 of income for every dollar of state-funded appropriations, and between $1.70 and
$2.10 of state and local public revenues for every dollar of state-funded appropriations in 2006.
While impressive, these numbers are likely to understate the UNC System’s positive
impact on the North Carolina economy. The gains from teaching don’t include some positive
social benefits observed for college graduates, such as their improved health condition and
reduced crime rates – both outcomes which reduce subsequent public expenditures. The benefits
from research spending would likely be much larger than those reported if the ultimate value of
the research findings and their implementation – such as reduced levels of illness and injury,
gains in worker productivity, and jobs and incomes created from commercial spinoffs of the
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research – could be measured and captured. Of course, there was no attempt to place a
monetary value on the service function, and clearly, of course, service activities of the UNC
System do generate positive economic value. Finally, in the ranking of annual UNC System
“production” against those of other private industries in the state, the production values of the
other industries certainly include the productivity of UNC System graduates who work in those
industries. If that productivity was able to be subtracted from the output of the private industries,
the UNC System’s ranking would rise.
These conclusions suggest the monetary benefits for the UNC System presented in this
report are minimal values, and the impact of the System is much larger. How much larger
would require a significantly greater evaluation of the System’s activities, but particularly of the
research and service functions. Nonetheless, the presented values can be generated rather easily
on a regular basis and can be used to provide at least a baseline measure of the UNC System’s
on-going contribution to the state. And although understated, these measures show – without a
doubt – that the campuses of the University of North Carolina System are a vital and integral part
of North Carolina’s present and future.
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ENDNOTES
1 The invaluable statistical assistance of Xiaoyun Yang, Director of Information Reporting Services at the University of North Carolina – General Administration, is greatly appreciated. Leslie Boney and Norma Houston of the UNC-General Administration also provided valuable comments and information.
2 New spending for the state could be generated at these events by out-of-state attendees (as, for example, by fans of the opposing sports team who travel from another state to watch their team play a UNC System team), but such spending could be offset by losses when fans of a UNC System campus team travel to another state to attend similar games.
3 Room and board costs aren’t included because such costs would also be incurred if the individual was not in college. Tuition and fees are from the UNC General Administration and vary by institution, degree, and in-state and out-of-state student. The costs of books and supplies are from The College Board, Trends in College Pricing, 2007. The foregone earnings are an opportunity cost to the student and a productive cost to the economy. They are calculated as 75% of the annual salary of the next lowest degree for the student (high school degree for bachelor degree, bachelor degree for master, law, and medical degrees, and master degree for doctorate degrees) – the 75% accounts for the ability of the student to work full-time during the summer – minus what the typical student earns during the school year by working. Based on survey data, these school year earnings are assumed to be $7500 for undergraduates and $10,000 for students in graduate and professional programs (Jonathan Orszg, Peter Orszg, and Diane Whitmore, “Learning and Earning: Working in College”, Upromise, Inc., August 2001; and Tina Tuttle, “College Students Working: The Choice Nexus”, IPAS Topic Brief, April 2005).
4 The salary data are from the UNC System General Administration and the Employment Security Commission of North Carolina. Only annualized salaries of graduates working at least three quarters were used.
5 The value of earlier degrees earned in another year or at a non-UNC System institution would be assigned to that year or that institution.
6 The age of 67 is used for retirement from work because it is the age to receive full Social Security benefits for individuals born after 1960. The “real discount rate”, or the rate at which individuals willingly trade current dollars for future dollars after accounting for inflation, is assumed to be 3% annually (James Girola, “The Long-Term Real Interest Rate for Social Security”, U.S. Department of the Treasury, Research Paper No. 2005-02, March 30, 2005). In recent decades, the payoff to more education has been increasing on trend (Claudia Goldin and Lawrence Katz, The Race Between Education and Technology, Cambridge, MA: Harvard
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University Press, 2008). This means the additional salary earned by individuals with the next highest degree has been increasing. To account for the likelihood that this trend will continue, the additional salary associated with the next highest degree is assumed to increase 1% annually, which is a modest average of the changes this decade (U.S. Bureau of the Census, Statistical Abstract of the United States). The college costs of the student are also converted to the same purchasing power dollars as the additional earnings before being subtracted from the present value of the aggregate additional earnings.
7 Again, data on the percentage of graduates by institution and by degree-major who, in their first year after graduation, have remained to work in North Carolina are kept by the UNC System General Administration.
8 The University of North Carolina School of the Arts has both high school programs as well as undergraduate programs. High school graduates from the School typically enroll in colleges or universities and therefore their results are not applicable to the analysis. Data on the salaries of the School’s college program graduates were limited and often showed starting salaries lower than those for high school graduates. This is likely due to the unique job market for fine arts graduates, where the time required to attain a salary commensurate with the graduate’s training can be much longer than in other professions. For these reasons the results for the School are not displayed.
9 The multiplier accounts for the additional income generated in the state when graduates spend their salaries at North Carolina businesses and retail outlets. A multiplier of 1.2 is used in Table 1 (Mig, Inc., IMPLAN for North Carolina). Multipliers do not account for re-spending on products and services from out-of-state sellers or on products or services made outside the state. Hence, for example, the multiplier associated with an auto purchase in North Carolina will be modest because the majority of the value of the vehicle was made outside of North Carolina.
10 The aggregate cost in state appropriations excludes the institutions’ tuitions and fees because these revenues are kept by each institution.
11 Aggregate costs for a class are summed over the number of years required to educate and graduate that class, assuming four years for bachelors degrees, two years for masters degrees, three years (beyond masters level) for doctorate degrees, three years for law degrees, and four years of professional training for medical degrees. The sums are expressed in present value terms. The public revenues include all state and local taxes and fees and are taken as a percent of personal income using the latest available data.
12 The College Board, Trends in College Pricing, 2007.
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13 Included in this category are also sponsored programs. Sponsored programs are scholarly, professional, and creative activities that University personnel conduct with support from external funding, such as grants, contracts, and cooperative agreements.
14 For an example, see Brad J. Bowland and Michael L. Walden, The Economic Impact of the Department of Marine, Earth, and Atmospheric Sciences at North Carolina State University, Department of Agricultural and Resource Economics, North Carolina State University, June 1995.
15 State (North Carolina) sources of research funding are omitted because the argument can be made those state funds could be spent on other public programs or left in private hands and spent, with both forms of spending generating economic impact.
16 In other words, this reduction accounts for the fact that 2.4 percent of the federal funding comes from North Carolina taxpayers, so this amount is not a net gain.
17 For a review of the issues in calculating service impacts, see Dean Birkhaeuser, Robert Everson, and Gershon Feder, “The Economic Impact of Agricultural Extension: A Review”, Economic Development and Cultural Change, 39, 3, April 1991, 607-650.
18 The monetary values from service activities in Table 6 are not included because those spending amounts appear in the economic activities of the private firms.
19 Gross state product for a given industry measures the value of output produced by that industry within North Carolina. As such, it excludes the value of any inputs purchased from outside the state and used in the production. Therefore, its value is usually less than the sales value of the output. The multiplier impacts are also not included with these values. The sectors are three-digit NAICS (North American Industry Classification System) industries except in the case of retail trade, wholesale trade, and construction, which are at the two-digit level. Greater detail was not available for these three industries.
20 Government sectors, including the military, are excluded.